Better Prospects For Gold In 2020?

Will 2020 be better than 2019 for the yellow metal? We invite you to read our article, which provides an important update of the macroeconomic outlook for 2020 we painted one month ago. Read it and learn what has changed among the fundamental factors and whether they will become less or more friendly toward gold.

In the January edition of the Gold Market Overview, we wrote that in 2020, "the macroeconomic environment could be less supportive for gold than in 2019." Please note that we did not write that the price of gold would be lower, but that gold's fundamentals could deteriorate in 2020. The change in fundamentals, of course, can send gold prices lower, but it can merely soften the gains, or it can even have no impact on the price of the yellow metal at all, as technical factors can outweigh the fundamental drivers. It could also be the case that gold plunges based on the technical factors while the fundamentals are only somewhat worse than they've been last year.

However, perhaps we should still update our gold outlook for 2020. Our thesis was based on several assumption, some of which no longer apply. In particular, we forecasted that 1) the Fed will be in a wait-and-see mode, but with a dovish bias; 2) the US fiscal policy will remain easy; 3) U.S. dollar should stay strong. Let's reexamine them!

First, we still do not expect that the Fed will cut federal funds rate this year (unless the crisis arrives, of course). Maybe one cut is possible, but the wait-and-see mode is our baseline scenario. This is why we stated that we would see in 2020 "a more hawkish stance than in 2019 when we witnessed three interest rate cuts." But we could underestimate the significance of the repo crisis and the Fed's readiness to pump money into the financial system. After all, the US central bank switched quickly from quantitative tightening, i.e., withdrawing around $50 billion per month into quantitative easing, i.e., injecting $60 billion per month. It's not easy to quantify, but it might be the case that, even without any additional interest rate cuts, the overall monetary policy will not be significantly more hawkish after all, especially that on the last day of January the yield curve has inverted again.

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If you enjoyed the above analysis and would you like to know more about the most important macroeconomic factors influencing the U.S. dollar value and the price of gold, we invite you to read the ...

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